Germany could suffer economic losses of around 40 billion euros if this winter turns out to be colder than average, gas company Uniper warned in a report that said such a development could plunge Germany into recession.
Every year, when October begins and with it, very often, the heating season, Europe begins a race to fill its gas storage facilities in time to ensure a comfortable level of stocks before the peak demand for electricity and heat. Norway is set to increase gas exports to the European Union, American LNG producers are set to increase shipments to Europe and, according to Germany’s energy market regulator, there is plenty of gas. There is a problem with that. The situation could change very quickly.
Germany’s gas storage capacity is currently at just over 76% of capacity. It should be 90% full to avoid the economic devastation that Uniper warns about. There would still be losses, even with 90% full storage, but they will be much less than 40 billion euros, which is equivalent to about 46.6 billion dollars. If storage is 90% full, a very cold winter would “only” cost the German economy 14 billion euros, or $16.3 billion, according to the study commissioned by Uniper and carried out by a consulting firm called Frontier Economics.
The second sum may not seem insignificant, but, according to Uniper, the difference between the two is “a difference of around 25 billion euros, which would make the difference between stability and recession.” This is how vulnerable the German economy has become to any unfavorable fluctuations in gas supply.
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It emerges from the Uniper report that some financial damages, measurable in billions of double-digit sums, are guaranteed. These damages are also unlikely to remain as low as €14 billion because maintaining storage levels at 90% during peak demand season is impossible precisely because it is peak demand season.
However, not everyone is so pessimistic. In another recent report, Independent Commodity Intelligence Services said that even extremely low temperatures during December and January would not compromise the security of natural gas supplies in Germany, so there was no reason to worry about it.
“Even in the case of a very cold winter, gas storage and additional liquefied natural gas (LNG) can together ensure sufficient supply, as Europe has built sufficient regasification capacity,” ICIS said in its report. The outlet admitted that in a severe winter scenario, Europe could see its gas reserves drop by up to 20%, which is low in the red zone, but that would not be a problem because there will be more liquefaction capacity in operation next summer. Still, ICIS also admitted that pricing could become an issue as demand for LNG increases during the winter.